Lower unemployment may not create inflation, Bullard says

The recent acceleration of job creation in the US may fail to create higher inflation, James Bullard, the president of the Federal Reserve Bank of St Louis, said in a speech today (February 6).

“I caution against interpreting good news from labour markets as translating directly into higher inflation,” Bullard said. “The empirical relationship between these variables has broken down in recent years and may be close to zero.”

The US economy created 200,000 new jobs in January and the unemployment rate remained at 4.1%, the Bureau of Labor Statistics said on February 2.

The Federal Reserve has struggled to reach its 2% inflation target since it adopted it in January 2012. But Bullard conceded that stronger growth is helping the central bank to get closer to its goal. “The measures today are closer to being in line with the Federal Open Market Committee’s 2% inflation target, but remain a bit low,” he said.

The US economy grew 2.5% year-on-year in the last quarter of 2017, above the 2.1% projected by the Fed. However, Bullard does not expect it to last. “The natural forecast to make at this point would be that growth will slow toward the trend pace during 2018 and 2019.”